Sarkozy, Merkel: A Summit for Austerity

German second-quarter economic growth is far below forecasts, stagnating at 0.1% — just like French and Spanish economic growth – the Office for Statistics (Destatis), has announced. The announcement comes as the German chancellor is getting ready to meet Nicolas Sarkozy on the afternoon of August 16 in order to discuss the debt crisis in Europe.

German economic growth barely exceeds that of France, which had zero growth in the second quarter. And yet, the beginning of the year had coincided, for Europe’s biggest economy, with an exceptional upturn in the economy. German first-quarter growth had been evaluated at plus 1.5% by Destatis, and later reevaluated at 1.3%. And although the economists interviewed by Dow Jones Newswires expected a slowing of German growth in the second quarter, predicting a 0.5% rise in GDP compared to the booming first quarter, all the same they did not foresee such lackluster growth. This news, which comes as we learn that Spanish economic growth is just 0.2% has not been received well by business and financial circles. Ill-humored, European stock markets again opened with a drop on August 16.

These low figures are notably a consequence of the negative contribution of foreign trade to German GDP. Indeed, the Statistics Office emphasized that exports were exceeded by imports in Germany, although the country is used to celebrating flamboyant foreign trade figures. “Both private consumption and construction industry investment have slowed the economy,” Destatis noted. However German economic growth over the year rests at around 2.8%. This result is also below the 3.2% growth initially forecast.

The French president and the German chancellor will meet on the afternoon of August 16 in Paris, but the plans for “super austerity” that are likely to be adopted in the wake of the directives addressed to Italy are not at all approved of unanimously, and notably not by Dominique Plihon. In an interview granted to l’Humanité on August 16, Plihon, the president of ATTAC’s scientific council, declared that “the present crisis demonstrates the failure of the austerity policies that were adopted following the plans to re-launch the economy.”

For her part, Merkel, in concert with Sarkozy, persists in going down the austerity road and is preparing to condition public opinion and the financial markets via their imminent meeting. Merkel has already issued a warning: The system of euro-bonds will not be adopted. Indeed, the system would be beneficial to the smaller economies in the European Union, which could even benefit from more affordable credit rates than the existing ones, and this would be particularly harmful to German finances. In the meantime, the markets are continuing to panic.